Articles
Here’s Your Key to Reduce the Interest Rate of Your Existing Home Loan
by Mymoney Mantra FinTech (Financial Technology)The
Home Loan is the most common loan product
in the lending sector. An overwhelming majority of people take Home Loans to
purchase or build their homes. Naturally, the rate of interest is one of the significant areas of concern. A Home Loan is a
long-term investment. Hence, the interest rates have a lot of significance. A
difference or a percentage point in the interest rate can result in the savings
of lakhs of rupees over the entire tenure of the loan. Here’s your key to
reduce the interest rate on your existing
Home Loan.
1.
Switch
from the base rate concept to the MCLR concept
Until
recently, banks were following the base rate concept for deciding the interest
rate on loans. Today, they have migrated to the more dynamic Marginal Cost of Funds based Lending Rate (MCLR) concept. Banks cannot lend at rates below the
MCLR. The linking of the MCLR with the repo rate mechanism makes it a dynamic
rate concept. The Reserve Bank of India announces changes in the repo rate
frequently. Hence, you can expect welcome
changes in the MCLR as well. A downward repo rate can result in the lowering of
your Home Loan Interest Rate. Therefore,
it is better to switch over to the MCLR from the Base Rate concept. Banks allow
you to do a one-time switch from the base rate to the MCLR.
2.
Pay
a conversion fee and reduce the rate
The
MCLR concept applies to banks alone. The Non-Banking Financial Companies (NBFCs)
do not have this concept. They follow the Base rate or a Prime Lending Rate
(PLR) concept. Such companies do not usually change the base rate or the PLR.
They change the spread thereby resulting
in an overall reduction in the rates (Base Rate +/- Spread). These companies
allow a change in the spread on payment
of a conversion fee. However, do a quick calculation and check out whether you
benefit from the conversion. If the costs
are higher than the overall benefit in the interest, it does not make sense to go
for the conversion.
3.
Opt
for a Home Loan Balance Transfer (HLBT)
The
HLBT is the most common way to reduce the interest rate on your Home Loan. With
Reserve Bank of India liberalizing the
interest rate regime, the banks are free to fix up their interest rates on Home
Loans. As a result, there is an extreme competition among banks to offer the
best interest rates to their customers. It is beneficial because it has
resulted in the lowering of rates thereby
encouraging a new loan product, the Home Loan Balance Transfer. Home Loan
borrowers can transfer their Home Loans from one bank to another and avail the
benefit of reduced interest rates. Calculate your Home Loan Balance Transfer Eligibility and explore
possibilities to lower your interest rate
burden. Remember to do the Cost-Benefit analysis before you initiate the HLBT.
It is beneficial if the residual tenure of your Home Loan is more than 7 to 10
years. The rate of interest should also be less by a minimum of 0.75% to 1%.
4.
Negotiate
with your existing bank
Many people do not know that they can negotiate the interest rates with their banks. A good credit history and loan
repayment record is necessary for you to initiate the negotiations. Having the
in-principal HLBT approval can work in your favor.
You can negotiate and get a comparable
rate. You will not only end up saving on the interest component but also the
expenses connected to the HLBT process.
Also Read: Home Loan Top-up: What are the Benefits and How to Get It
5.
Pay
an amount more than your regular EMI
Banks
fix up the EMI (Equated Monthly Instalment) after considering various factors
like repayment capacity, loan amount, tenure, and the interest rate. However, that does not mean
you should not pay more than your EMI. You can pay more than your EMI
amount every month and save a considerable
amount of interest. The EMI on a loan of Rs. 25 Lakhs @
9% for 20 years is Rs. 22,493. You end up paying Rs. 2,898,356 as
interest over the entire tenure. If you pay Rs. 3,000 more
per month, you will close your loan within 15 years. The total interest payment amounts to Rs. 2,064,200.
Thus, you save more than Rs. 8
Lakhs by paying Rs. 3,000 more per month. It is as effective as reducing the interest
rate.
6.
Make
a lump sum loan prepayment
In
case you receive a bonus or an incentive of a substantial amount, you can
divert the money towards your loan account and make a lump sum payment. You can
reduce your interest burden.
We
have seen 6 simple ways to reduce the
interest rate burden on your Home Loan.
To
apply online for Credit Cards, Secured Loans and Unsecured Loans, visit www.mymoneymantra.com, the leading online lending marketplace that offers financial
products from 60+ Banks and NBFCs. We have served 2 million+ happy customers
since 1989.
Talk
to our Loan Specialists toll-free at 1800 103 4004 to know more about
our products and offers.
About Mymoney Mantra 
FinTech (Financial Technology)
1 connections, 0 recommendations, 7 honor points.Joined APSense since, September 22nd, 2017, From New Delhi, India.
Created on May 2nd 2018 06:57. Viewed 184 times.
